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(The Housing Bubble . . bore a strange resemblance to the first minutes after the Titanic hit the iceberg - what problem?)
Not far enough distant to be considered "historic", and certainly not what one would consider the end of the story, but here is an interesting documentary produced by the BBC World Service in Sept of 2007 about the Credit Crunch and the Sub-prime lending crisis and the assessments given by the financial gurus at the time. Among others is this exchange with Lyle Gramley:
Lyle Gramley: “We’ve had dozens of mortgage companies go down the tubes. They’re not ever going to be revived again. We’ve had billions of dollars lost both here and abroad from investments in sub-prime mortgages. That money is not going to be recovered again. Eventually we’ll get over the panic, but we’re never going to go back to the sloppy underwriting standards, the sloppy investment practices we had during my lifetime, or perhaps yours either.”
BBC Interviewer: “Sure of that . . never again??
Gramley: “Not in my lifetime, or yours either. Twenty-five years from now, perhaps. But that’s a long ways down the road.”
I suppose hindsight really is 20/20, but it's pretty amazing how much this took everyone by surprise and how much denial was being heaped on an unsuspecting public.
Certainly gives pause when you hear breathless proclamations the recession is over.
Dean Baker is the Co-Director of the Center for Economic and Policy Research, and he shares some interesting information with us:
Word has it that President Obama intends to appoint a task force the week after next which will be charged with "reforming" Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.
This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economist in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program.
The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.
The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.
Similarly, if they had been fortunate enough to accumulate any substantial amount of savings in a 401(k) account, they just saw much of this wealth vanish with the plunge in the stock market. The median late baby boomer household (ages 45-54) has a net worth of just over $80 including the equity in their home. This means that if they took all of their savings, they would have less than half of their home (assuming a median price $175,000) paid off, and nothing else.
The median household among older baby boomers would be doing a bit better. With a net worth of $143,000, this household could have most of their home paid off, but nothing else. And of course, half of the population has wealth less than the median, so they would be less well-prepared for retirement.
In short, the vast majority of baby boomers will be approaching retirement with little other than their Social Security and Medicare to support them. And now President Obama is apparently prepared to appoint a commission that will attack these only remaining pillars of support.
John Amato: If Obama touches the third rail of politics, he is truly clueless. How did that work out for Bush? I really don't get it. The konservative krowd have been trying to destroy it ever since FDR put it in place.
This keeps coming back mainly because Democratic politiciansin explicably keep using it as a yardstick of "fiscal responsibility." It's actually the opposite.
Any Grand Bargain that includes negotiating with conservatives on social security must be off the table. They want to destroy it. They always have.
